Question

Rainey Enterprises loaned $45,000 to Small Co. on June 1, 2018, for one year at 7 percent interest. 

Required 

Show the effects of the following transactions in a horizontal statements. In the Cash Flow column, indicate whether the item is an operating activity (OA), an Investing activity (IA), or a financing activity (FA). For any element not affected by the event, leave the cell blank. (Not every cell will require entry. Do not round Intermediate calculations. Enter any decreases to account balances and cash outflows with a minus sign.) 

(1) The loan to Small Co. 

(2) The adjusting entry at December 31, 2018. 

(3) The adjusting entry and collection of the note on June 1, 2019. 

Answer 1

Solution:

Rainey Enterprises
Horizontal Statements Model
Date		Assets			=	Liab.	+	Equity	Income Statement			Statement of cash flow
		Cash +	Notes Receivable +	Interest Receivable	=			Retained Earnings	Revenue -	Expense   =	Net Income
1	6/1/year 1	-45000.00	45000.00									-45000.00	IA
2	12/31/year 1			1837.50				1837.50	1837.50		1837.50	0.00	NA
3	6/1/Year 2			1312.50				1312.50	1312.50		1312.50	0.00	NA
	6/1/year 2	48150.00	-45000.00	-3150.00								45000.00	IA
												3150.00	OA

Answer 2

Rainey Enterprises
Horizontal   Statements Model
Date		Assets			=	Liab.	+	Equity	Income   Statement			Statement   of cash flow
		Cash +	Notes Receivable +	Interest Receivable	=			Retained Earnings	Revenue -	Expense   =	Net Income
1	6/1/year 1	-45,000	45,000									-45,000	IA
2	12/31/year 1			1,838				1,838	1,838		1,838	-	NA
3	6/1/Year 2(Adjusting Entry)			1,312				1,312	1,312		1,312	-	NA
	6/1/year 2( collection of the note )	48,150	-45,000	-3,150								45,000	IA
												3,150	OA
Interest Receivable   = 45000*7%*7/12=$1,8337.50
Interest Receivable   = 45,000*7%*5/12=$1,312